Monthly Report

The May ReportMay 7, 2020

COVID-19 Update

The month of April was essentially completely consumed with issues surrounding COVID-19 that seemed to change daily. Most of the month surrounded efforts to supposedly address the health issues with really no talk about how to deal with an unprecedented government imposed immediate shutdown of the economy, and the incredible number of consequences it will cause, both temporary and permanent. Fortunately, within the last two weeks the recovery of the economy and some form of “normal” life is gaining attention. So much has occurred that it is impossible to cover it all, and things might change by the time of the Board meeting, but hopefully this report gives you a good foundation of where we are and where we might be going.

Easing Up on the Stay-at-Home Orders – Reopening the Economy

There are countless number of discussions ongoing regarding when and how to start up the economy and especially get people back to work. There are lots of questions and very few answers. NAIOP is working with our state and regional partners to push for getting the stay at home orders safely lifted and the economy started on some type of recovery. For California, while there is a lot of daily speculation, no dates for lifting the stay at home orders have even been floated. This will be a slow roll out which many have described as slowly moving a dimmer switch to brighten the lights, as opposed to flipping any switch, that will be driven by the health officers of the state since all the elected officials are saying it will be the health data that drives any easing of the stay at home order, not economic conditions.

The focus will be on getting widespread testing, both diagnostic to see if you have COVID-19 and serologic to see if you had it in the past. Plus, there will need to be sufficient tracing capability to track down and quarantine anyone who you may have had contact with those diagnosed with COVID-19. In a state of 40 million people this is going to be quite a challenging task. There will also have to be vast amounts of personal protection equipment (PPE), gloves, masks, etc. It must be remembered, the objective of the stay at home order was to prevent the health system, especially hospitals, from getting overwhelmed. So, to ease up on the restrictions there will have to be sufficient hospital capacity to handle any resurgence of COVID-19. This goal seems to be the closest one to being achieved.

Additionally, it must be remembered that whatever the State decides, that does not limit the local governments from being stricter and easing restrictions at a slower pace. So, any easing of the restrictions and reopening will differ county by county and maybe even city to city. The NAIOP SoCal region is a perfect example, which will be a challenge. Los Angeles County, and the city of Los Angeles, have stricter stay-at-home rules than the state standards. The Orange County Board of Supervisors essentially has not adopted a stay-at-home rule and are letting the state standards control. LA County is the “hot-spot” of COVID-19

cases in the state, with nearly 25,000 cases, which is about 47% of the cases statewide, and nearly 2,500 deaths which is over 50% of the statewide deaths. Orange County is nearing 2,500 cases and about 60 deaths. Plus, the philosophies regarding the extent of government control are very different. We expect LA County to open at a far slower pace than Orange County.

There are some common themes seeming to emerge regarding allowing people back to work. Six-foot distancing within the workplace, probably masks will be required to be worn, readily available hand sanitizers and allowing people to use them frequently throughout the day, taking the temperature of people as they enter the workplace, etc. Now for some business sectors this may be easy, for some not. CalOSHA is also putting out worker protection guidelines for certain business sectors. There will be one for warehouses/logistics, but it has not been released as of yet.

Below are the “guidelines” that have been put out by the State, which gives you the flavor of the vague statements of what may cause an easing of the restrictions. Notice that Stage 4 below, the End of Stay-A-Home Order, says it will NOT go onto effect until there are COVID-19 “therapeutics”, which hopefully refers to treatments of the disease, as opposed to a vaccine which is said to be over 1 year away. While there has been some recent positive research regarding possible treatments, even they are a long way off from any widespread use. What this could very well mean is the State of Emergency could be in effect for some time, and many of the restrictions placed by the State and local governments, like eviction moratoriums, rent pay back provisions, etc., are tied to the end of the State of Emergency. This will have to be addressed, otherwise, even if people are going back to work, some of the harmful actions taken against businesses may continue to exist.

On April 14, 2020, Governor Newsom set out the following six indicators for modifying the stay-at-home order;

The ability to monitor and protect our communities through testing, contact tracing, isolating, and supporting those who are positive or exposed;

The ability to prevent infection in people who are at risk for more severe COVID-19;

The ability of the hospital and health systems to handle surges;

The ability to develop therapeutics to meet the demand;

The ability for businesses, schools and child-care facilities to support physical distancing; and

The ability to determine when to reinstate certain measures, such as stay-at-home orders, if necessary.

Then, on April 28, 2020, Governor Newsom outlined the 4 Stages that will occur to gradually lift the stay-at-home order:

Stage 1 – Safety and Preparedness (this is where we are today) – This is the effort to build up the testing capacity, contact tracing efforts, and PPE supplies, have hospital surge capacity, and to make the current “essential” workplaces safe.

Stage 2 – Open Lower Risk Workplaces with “ADAPTATIONS” – This Stage is looking at retail, manufacturing, offices, schools and day care facilities, as well as some public places. It would include some type of pay replacement program so the employee could stay home if they get sick and not be worried about their income. This would seem to be the most likely Stage that commercial real estate would fit into.

Stage 4 – End of Stay-At-Home Order – This would apply to things like concerts, convention centers, and live audience sports and supposedly would not occur until “therapeutics have been developed”.

ACTION ITEM: Please discuss and advise your Legislative Affairs staff what policies and procedures, or ideas, your company or business sector have developed to bring your employees back to work with social distancing and other health protective measures.

This is very important so that as this reopening rolls out over time, we can try to keep whatever guidelines the health officers and local governments adopt as consistent as possible with what your company can actually do and works for your company and employees. Otherwise, they may adopt rules that practically cannot be put into action. Please contact Peter Herzog at peter@talleyassoc.com with any of the above-referenced information.

Actions Regarding Eviction Moratoriums

Many of the local jurisdictions in Los Angeles and Orange County have enacted eviction moratoriums, and we are trying to keep an up-ot-date list. So far at least 12 have done so in Orange County. In Los Angeles County at least 34 have done so, but all 88 cities are actually under an eviction moratorium because the Los Angeles County Board of Supervisors enacted an ordinance that imposes the County eviction moratorium on all cities in Los Angeles County that have NOT enacted their own ordinance.

Additional jurisdictions seem to be enacting their own ordinances almost daily and once passed they come back and amend them. So, the best advice is to check with any city in which you do business to stay up to date on what actions they may have taken regarding evictions as they are not all the same. The biggest difference among the ordinances is the amount of time a tenant has to repay any deferred rent. We have seen everything from 3 months to 1 year AFTER the state of emergency is lifted, which we do not know when that will be.

Additionally, the State Judicial Council ordered that the courts in this state may NOT (1) Issue a summons on an unlawful detainer action, nor (2) enter a default or default judgement for restitution for failure to appear in an unlawful detainer action unless the action is necessary to protect public health and safety. This rule remains in effect until 90 days AFTER the Governor lifts the state of emergency. This blocks the ability to pursue an eviction even if the landowner wanted to do so. Yet, local jurisdictions are passing the eviction moratoriums anyway claiming the Judicial Council order does not stop notices being given and the filing of eviction action which would confuse and upset tenants.

And now, a bill, SB 939 (Weiner), has been introduced that would make it a crime, a misdemeanor, to evict a tenant from a commercial building punishable by imprisonment of up to 1 year in a county jail and/or a fine of $10,000. Additionally, a violation would be considered an unlawful business practice and an act of unfair business practices and you could be subject to those penalties as well. While the bill says it would only be in effect while the COVID state of emergency is in effect, the bill is not limited to evictions arising from COVID-19 economic conditions. It would apply to all. CBPA and other business organizations are in contact with Senator Wiener’s office to try to amend the bill so it is not a crime, contains the same type of provisions as the Governor’s residential eviction Executive Order, and have the bill preempt local ordinances so maybe we could have one rule on evictions.

Right of Recall and Worker Retention Ordnances

Unfortunately, local jurisdictions are using the COVID-19 Emergency as an excuse to push through controversial ideas without any real notice or input. In fact, the City of Los Angeles passed a major amendment to a proposed ordinance without even letting the public see it. It was never on the city website, and it was not even read into the record until after public comment was provided.

Some of the most problematic ones are what are called Right to Recall and Right of Retention Ordinances. Essentially what they do is tell businesses how they must rehire laid-off employees, and require a business to keep all the current employees for at least 90 days when a business is sold. NAIOP is working with other business organizations to defeat the measures. The City of Los Angeles has now passed modified versions that apply ONLY to “hospitality workers, property management workers, and airport workers”, as opposed to every employee as was originally proposed. The one that will impact the commercial real estate industry is the one surrounding “property management workers”, which are “janitorial, maintenance and security workers.” If the owner of the building, or the subcontractor, employ more than 25 or more such workers, the ordinance applies. The County of Los Angeles and the City of Long Beach are also looking at these types of ordinances, and we expect they will pass versions similar to the City of Los Angeles ordinances.

CEQA Statute of Limitations Tolled

A very harmful order was made by the Judicial Council, Order #9, tolling ALL statute of limitations for civil actions, which includes CEQA lawsuits, until 90 days AFTER the Governor lifts the state of emergency, which we have no idea when that might happen. From what we have learned, it is not expected to be lifted for a long time. The entire purpose of the short statute of limitations was to provide certainty that projects could move forward timely after all challenges were overcome.

Now new projects will be frozen for a long time even though construction has been deemed an “essential service”. Numerous efforts have been made to get the Judicial Council to revise its order so it does not apply to CEQA cases. So far, there has been no responses of any kind from the Judicial Council, and the efforts will continue.

State, County and City Budgets, and SPLIT ROLL

So, now that the government shut down the economy, they are now entering budget season and are realizing they will have budget shortfalls for even the current year budget, and even larger ones for the 2020-2021 budget year. And the deficits will be very large. This is at a time when so many people are clamoring for the government to provide additional money to help out everyone who has been impacted by the government ordered shutdown. Yet, the State budget office has already told the Legislature there will need to be significant cuts, and nearly every city will be in trouble as well. While budgets for the State and local governments have to be adopted in June, it appears most likely that some type of initial budget will be adopted, and then many budget revisions will occur throughout the year.

As we have seen over and over, one of the primary reactions that governments take to deal with deficits is to raise fees and taxes, etc. This may not occur initially while so many businesses are closed, but as the scope of cuts become more prevalent, and the agencies talk about cutting police and fire budgets, and other services people have come to expect, the cries to not cut will become louder. Split roll is on the November, 2020 ballot and the extent of the budget problems and proposed cuts will be getting a lot of attention over the next several months, and probably longer. The pro-split rollers have already added to their rhetoric that passing split roll is even more important now since government budgets will be so severely impacted for many years. Yet, in light of the economic damage that has been done and will take years to come out of, the defeat of split roll is even more vital than it was pre-COVID-19. So, we cannot afford to lose sight of the fact that an expensive, effective campaign still needs to be run or the economic trouble we now face will just get that much worse with even more businesses disappearing.

Who is on our side fighting Split Roll?

Commercial real estate is working with a broad coalition of business owners to educate the voting public about why Split Roll is bad for California and why they should vote no on the November ballot measure. We are still waiting for a ballot measure number so that we will be able to say “Vote No on Proposition ___”. It’s important to become familiar with the organizations and committees formed to fight Split Roll and their arguments.

NAIOP SoCal has contributed over $100,000 to the effort to fight split roll, but that is a drop in the bucket compared to what is needed to run a state-wide educational campaign effort. Contributions may be made in a variety of ways – directly to one of the campaign committees listed above or to your NAIOP SoCal Issues PAC. The Issues PAC was formed for the purpose of fighting Split Roll and to give NAIOP Members a place to contribute that they can trust.